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Saturday, June 14, 2008

How To Heat Up Solar

Sramana Mitra

In India, the sun is worshiped as a god. It seems incredible then that the U.S. Senate has again failed to pass a bill that would extend solar tax credits to build new power plants and potentially create hundreds of thousands of renewable-energy jobs. Why do we turn down the sun's abundant blessings?

Currently in the U.S. there are four key segments that use solar energy: new residential homes, retrofit residential homes, retrofit commercial and utilities.

Perhaps the most interesting place where solar energy is making inroads is in utilities. Not only are they setting up solar power plants of their own, they are also buying solar energy from others. There are 4,500 megawatts of solar power plant projects in the works as we speak.

In certain states, utilities are required to have a certain percentage of their portfolio in renewables, so the incentive to invest in solar is clear and compelling. California has one of the most aggressive requirements: 20% of a utility's energy must come from renewable sources by 2010. Oregon, Illinois, Ohio, Minnesota, Colorado, New Mexico and Hawaii are close behind. Experts expect a federal renewable portfolio standard soon.

Tom Werner, chief executive of SunPower (nasdaq: SPWR - news - people ), a leading manufacturer of high-performance solar energy technology, predicts that solar will account for about 10% to 20% of all new power plants in the U.S. by 2015. (Read my interview with Tom Werner.)

And solar power is a global business. Germany and Japan were early adopters. Spain, which imports 80% of its power, is making aggressive inroads into solar energy adoption as well. "With its abundant sunlight and environmentally aware population, Spain is today one of our largest geographies," Werner says. Similar dynamics drive other Mediterranean nations such as Italy and Greece, although they are behind Germany and Spain in adoption rates. Other active geographies that are leading the solar movement are Australia, South Korea and Ontario Canada, according to SunPower.

Conspicuously absent from the discussion are two names that loom large in the world's energy crisis: China and India.

While India is ahead of China, that's not saying very much. India has about 200 clear, sunny days in a year, and that natural resource could, theoretically, produce 5,000 trillion kilowatt hours of power per year. But India's sun resource is grossly underutilized, mainly due to a total lack of policy initiatives but also to limitations in energy storage technologies. Meanwhile, a large number of villages in India remain without electricity. The story is not much different in China.

All this leads us to ask a simple question: What would it take? What would it take for the U.S. to move to a 50% renewable energy economy by 2020? What would it take for India to become a 100% solar economy by 2050?

The answer lies in aggressive innovation and entrepreneurship in all parts of the solar ecosystem coupled with resolute policy decisions. And please note that policy alone, without innovation and entrepreneurship, will not solve the problem.

Take the United States. Building a 100- to 300-megawatt solar power plant costs $750 million to $1.5 billion. To really move the needle, hundreds and thousands of such plants need to pop up all over the country and funnel clean energy into power grids.

The best outcome would be if technology obviates the need for solar subsidies. "Eventually, it is a technology race," says David Chen of Equilibrium Capital, a new sustainability fund and a long-term technology industry veteran. We've seen this for over 30 years in cycle after cycle, whether it is in integrated circuits or disk drives, LCDs or flat panels. Moore's Law, it is called. We will see it again in solar. But in the meantime, policy will need to intervene, and make it worthwhile for investors and entrepreneurs to play in the market.

In India and China, a distributed power strategy would be ideal. But batteries, which store solar energy captured during the day and release it at night, are still too expensive to be used on a mass scale.

Here's another question: What would it take to stimulate small businesses to build up solar farms and sell energy into utility grids? I suspect, again, both policy and entrepreneurship would need to go hand in hand.

According to recent polls, the vast majority of Americans agree that developing solar power is vital to the health and wealth of the nation. Over the next five months, Senators Barack Obama and John McCain should ask these questions. Manmohan Singh, the prime minister of India, should too. To find answers, they need to sit down with entrepreneurs, business leaders and investors, and understand through candid exchanges what sort of policy is needed to unlock the enormous entrepreneurial energy that sits boiling amid the ocean of human potential.

Sramana Mitra is a technology entrepreneur and strategy consultant in Silicon Valley. She has founded three companies and writes a business blog, Sramana Mitra on Strategy.She has a master's degree in electrical engineering and computer science from the Massachusetts Institute of Technology.